by phil - December 27th, 2014 8:25 am
Sometimes we forget the basics.
In our video series, there's a lesson called "The Secret to Consistent 20-40% Annual Returns on Stocks" and I hope you've seen it. While the low implied volatility of the market has made it a rough year for option selling, we were still able to scratch out just under 30% profits in our long and short-term portfolios. We also cashed out out Income Portfolio with a 20% profit earlier in the year and we did it by following the BASIC strategies we teach at Philstockworld, not by gambling!
Not that we're adverse to gambling, gambling is fun – but fun means fun, which means it's a small part of our total investing portfolio while the vast bulk of our money is SENSIBLY INVESTED in safer strategies that are designed to grind out consistently good returns over many years. Two weeks ago we discussed the long-term advantages of compounding annual growth in "How to Get Rich Slowly" and now we'll begin discussing some basic strategies that can generate those consistent annual returns.
In the "7 Steps" video, we're discussing a basic covered call strategy and we delve into the Fundamentals of stock selection. At the time (Sept 2013), we were using ABX, which was trading at $19.15 and we sold the November $19 calls (45 days out) for $1.30. The simple instructions were to wash, rinse and repeat to make up to 40% a year by simply selling calls against the stock.
As you can see, ABX has dropped to $10.58 since then, down about 40% BUT, had you followed through and kept selling calls, we had a lovely 12-month period in which it stayed in our range and that would have given us 8 opportunities to collect at least $1 for $8 back before the stock turned down in September of this year. That would have dropped the net outlay below $10 and stopping out at $15 would have been a 50% gain for the year – even as the stock dropped 22% (from $19.15 to $15).
by phil - December 21st, 2014 8:15 am
I hope you get everything you want this holiday season and, most importantly, I hope you have time to spend with your family. I love waiting for my kids to wake up on Christmas morning to come out of their rooms so I can videotape (gosh I’m old, there’s no tape anymore) them in those first moments of Christmas morning – how can I not be of good cheer anticipating that?
I have something I can give you for the holidays as well. Not peace on Earth but perhaps peace of mind heading into the New Year – a way to help insure some future prosperity with a few inflation-fighting stock picks that can brighten up your portfolio, which also can be used to help balance the budget against unexpected cost increases.
This isn’t an options seminar or one about risk or leverage – these are just a few practical ideas you can use to hedge against inflation as it may affect your everyday life using basic industry ETFs and some simple hedging strategies to give you an opportunity to stay ahead of the markets if they keep going higher.
We haven't felt the need for inflation hedges since 2011 as the Fed has kept us in a somewhat DEflationary cycle but our 2011 hedges were good for 300-600% returns and we're simply going to repeat the same, simple concepts here to set up good, rational hedges against inflation to insure a financially healthy and happy 2015:
Idea #1 – Hedging for Home Price Inflation
Let’s say you have $40,000 put aside for a deposit on a home but you’re not sure it’s the right time to buy. On the other hand, let’s say you are worried that home prices will take off again (I doubt this but you never know). XHB is the homebuilder’s ETF, currently at $33.28 and they bottomed out at $28.50 in October and back near the highs for the year now.
You can sell 20 contracts of the XHB 2017 $28 puts for $2.25 each ($4,500) and that obligates you to buy 2,000 shares of XHB at $28 (16% off the current price) and you can use that money to buy 20 2013 $28/33 bull call spreads for $3.30 ($6,600) and…
by phil - December 6th, 2014 7:29 am
Just a quick post to summarize our four Member Portfolios.
As noted on Wendesday, we are well-balanced and very, very Cashy in our portfolios as we head into the end of the year. We've made great profits and we're not sure which way the market will end up so, essentially, we're taking a defensive stance to lock in our virtual gains and, as you can see from Dave Fry's Russell Chart – we're certainly not missing anything as the broad-based indexes (NYSE as well) have been flatlining since October.
As noted on Thursday, our main portfolios, the Long-Term Portfolio, which is hedged with the Short-Term Portfolio began the year with a combined $600,000 ($500/100) and have been holding the $760,000-$785,000 range since November, when we parked our positions in neutral (balanced between bullish and bearish) into the holidays. The two portfolios are up $179,000 for the year (29.8%) so of course we want to protect those gains!
Short-Term Portfolio Review (STP): Back to $165,000 (up 65%) after a scare on Tuesday as the SQQQs got priced really low, for no particular reason. We'll have to consider if we are too bearish here, or perhaps simply not bullish enough in the LTP. Remember, this portfolio isn't SUPPOSED to make money – it's here to protect the LTP – this is just a happy accident…
- DXD – Why do we have so many of those? We'll leave them this weekend but no point in rolling them since we have TZA for Jan protection.
- TZA – Speak of the devil. Well, since we're killing the DXDs next week, TZA becomes our primary short-term hedge and I'm good with that with the RUT back at 1,180 and TZA is at $13 so the $13 calls at $1 start making money on an over 5% drop between now and Jan – that's what a hedge is supposed to do. Yes, I know we bought them for $2 (and we lost $10K on the DXDs too) but that's just the cost of our insurance. We need to forget about that and focus on the $5K we have in
by phil - November 1st, 2014 7:26 am
And we're back!
Quite the recovery since last week so I figured we'd better take another look and go over our positions to make sure we're well-balanced. We're UNbalanced in our recovery, with less volume and more height than we've had before. Technically, we're looking bullish but, Fundamentally – there are still a lot of questions.
We'll discuss outlook and such in the Member Chat Room over the weekend, this article is just to check our balances, not an extensive review like we had last week. I'm on the way to Vegas today ahead of our Live Seminar next weekend (last chance to sign up), so I'm just going to note the items I think need adjusting this morning.
As an overview, last week our LTP was up 19.2% for the year at $596,170 and our STP was up 94% at $194,183 for a total of $790,353 (up 31.7% overall) following our aggressive strategy. As of Friday's close, the LTP had climbed to 21.5% ($607,710 and the STP fell to 82.5% at $182,498 for a total of $790,208, essentially flat at 31.7%. We turned more bearish on Wednesday and it may have cost us some gains but our aim into the end of the year is to lock in these profits, not "go for it."
The more conservative Income Portfolio was up 2.4% last week and finished yesterday up 8.5% at $542,304. Combined with the hedges in the Income Portfolio, that pairing is at $734,538, up 22.4% for the year and miles ahead of our 10% goal.
Our Butterfly Portfolio was as boring as its supposed to be, up 18.7% last week ($118,740) and up 18.1% today. The $25,000 Portfolio slipped from $30,745 to $28,802 as we added two bearish plays that, so far, have not worked out.
The reason we flipped more bearish this week was because we are back in the tops of our channels now AND we're heading into an election where, no matter who wins, half the people will be disappointed – that could lead to a small sell-off at least, along with a dozen other bad things that are going on in the world that we've decided to ignore again while the market engages in…
by phil - October 25th, 2014 7:34 am
It seems we weathered that storm very well!
As noted in our the last review of our virtual portfolios, BALANCE is the key to riding the market waves and we not only survived recent the 10% drop and 7% pop but we have thrived – with our Short-Term Porfolio holding onto a $94.2% gain (as of yesterday's close) and the Long-Term Portfolio back to 19.2% for the year, for a combined $790,353 off our $600,000 start – a combined 31.7% gain for the year!
I would say it's time to cash out but we've already cashed out with the Short-Term Portfolio now sitting on $179,243 in cash (92%) and the LTP has $637,800 in cash, which is 107% of the portfolio's value. That's because we've sold so much premium to others (our "Be the House" strategy) that it dwarfs the net value of our positions.
Nonetheless, we're only using 34% of our $1M margin as these are, generally, conservative long-term positions. We went into the weekend leaning very bearish in the STP, protecting our long gains in the LTP and Income Portfolios.
- CAKE – Was a disappointment as they lowered guidance on earnings on 6.3% more revenues and they lowered guidance to $2.07 from $2.25 – flat to last year. Our mistake here was looking at the costs of food products like corn, wheat, etc for basic foodmaking but it was the cost of cream cheese that killed them on the food side. Last year they topped out in the high $40s and now we are in the low $40s and I'm willing to go long on them but not appropriate for the STP – we'll look to cut this one loose next week.
- TNA (not shown) – We bought 25 Nov $63/67 bull call spread on 10/23 (morning post) and already sold the calls back on Friday – making us more bearish over the weekend. If the market is up, we'll have to adjust these quickly.
- GMCR – Getting to be a white whale for us, the damned thing never goes down. Earnings are 11/19 – I certainly want to see those.
- FAS – Part of the other
by phil - September 7th, 2014 8:13 am
Just a quick post to consolidate our virtual portfolio reviews for easy reference:
What we're stressing this year, above all else is our "BE THE HOUSE - Not the Gambler" strategy, in which we try to be the sellers, not buyers of options premium. Another very key strategy we're practicing is BALANCE – our Income Portfolio is a very conservative retirement portfolio, aimed at generating a 10% annual income with as little risk as possible while our much more aggressive Long-Term and Short-Term Portfolios balance each other – aiming for 20% annual gains.
Both sets are very much on track for their goals and, at this point, we're more concerned with protecting the profits we have than taking new risks but that doesn't stop us from adding prudent positions, especially as long as the market continues to make new weekly highs. In fact, we just added an IRBT position to the LTP on Friday (not yet reflected in this update)!
Short-Term Portfolio Update (STP): Back to $135,000 (up 35% for the year), that's a good sign as we were down to $125,000 earlier in the week so we gain $10K on a little dip means we're doing our job protecting the LTP. You never really know if your mix is right until it's tested under pressure.
- CAKE – Well, I hate naked long calls but we bought back the short calls from this spread and this is what we're left with. I'm not sure we'll get the pop we need if the indexes are dragging us down but there's also no particular reason to pull this trade so let's see what happens next week. Our premise here is lower food costs = more profits.
- DXD – One of our anchor hedges, just out of the money at $24.54 with 42 days left.
- GMCR – My white whale at this point. Earnings not until mid-November.
- XLE – Persistently low oil prices will gradually break XLE down, 42 days left.
- XRT – We bought back the short puts here when it spiked up, I'm happy with these puts, hopefully we get $8+ as XRT heads back to $85.
- CI, CMG, FB,
by phil - September 1st, 2014 8:14 am
Don't you just love lists?
Apparently, most American's do because the posts that get the most clicks are the ones with lists and quizzes. I don't do lists very often yet, somehow, I still manage to be fairly popular but let's see what happens when I make a list with a catchy headline.
This list is an update of our original 2014 Buy List, which was written on June 6th and originlaly had 20 trade ideas for the 2nd half of the year. That list quickly grew to 29 and, today, we're adding 11 more to make 40 top stock picks to take us into Q4. Those first 29 picks are already 82% successful with only HOV, IRBT, RIG, TEX and WEN failing to make gains so far and, on average, we're up 72% on our picks in just 3 months.
That's about par for the course with our winning percentages on trade ideas but what makes the Buy List special is that these are the ones we are comfortable committing long-term allocation blocks to, not just messing around with short-term trading. In fact, our 5 "losers" all represent great entry opportunities at lower prices and none are being kicked off the list as our general outlook for these stocks is measured in years, not months!
The strategy we are following is summed up nicely in this video:
As we did in building our Long-Term Portfolio, we're not going to rush in and buy everything. We will do exactly what we did in January where, following our Fall Buy List, we simply added stocks from our list whenever they became cheap. While our Members are able to pick up our trade ideas as they are released, we don't always add them to our virtual portfolios right away. As with the first half's Long-Term Portfolio, we will track every entry and exit in both our Live Weekly Webcasts, as well as in our Live Member Chat Room and alerts will be sent to our subscribers (you can join here, Basic and Premium Members get full access).
by phil - July 27th, 2014 8:42 am
What a month May was!
Through May 23rd, we had 158 winning trade ideas against 29 that did not work out (as of the review) for an 84% winning percentage. As usual, we begin our reviews with the last week of the previous month – even though the last week of May didn't overlap into June – as last weeks often do into the new month (which is why we do it).
Still, 4 parts is plenty for one month, so it's time to move on! Our Trade Reviews not only let us know if we're on or off track but, by putting the trades in context, hopefully we remind ourselves what works and what doesn't work in vartious situations so that, when we see a similar situation, we are ready, willing AND able to pull the trigger.
As usual, we should never be at 100% because we WANT to have trades on both sides of the table (as hedges) and the profit or loss of the trades are as of today, so we look very closely at the LOSING trades – to see if we now have better entries than we had originally (assuming we still like our premise).
Monday, May 26th was a holiday, so we start this month off on a Tuesday:
Selling risk to others in our Member Portfolios has given us 10%+ gains for year (so far). In fact, the only strategy we agreed with from the above chart was gold, which we bet heavily(along with DBA) at the beginning of the year.
Remember, this isn't about making good picks, per se – it's about having a good strategy that gives you a high probability of success – even when you are wrong about a trade. BEING THE HOUSE and selling risk (through options) to others is the closest thing we get to
by phil - July 12th, 2014 8:30 am
Our streak continues!
The first 3 weeks of the month (Part 1, Part 2, Part 3) saw 142 trade ideas (almost 50 per week) with just 17 misses for an 88% win rate. Of course – it's a bit like shooting fish in a barrel when we call a bottom correctly and, as you can tell from the large volume of picks, we put all that sidelined cash to good use.
Not every call is bullish, of course, as I was saying in Friday's post, BALANCE is the most important aspect for your portfolios if you intend to be a trader for more than just the short run. So, in theory, it shouldn't be possible for us to get to 100% and, actually, 88% probably means we were a little too bullish and just got lucky! We have to watch out for that – and that's why these reviews are so important.
Our Trade Reviews not only let us know if we're on or off track but, by putting the trades in context, hopefully we remind ourselves what works and what doesn't work in vartious situations so that, when we see a similar situation, we are ready, willing AND able to pull the trigger.
Able is a very important aspect of our trading strategies we tend to ignore. My call to go to cash in late March left us with empty portfolios we were able to fill up in May and THAT is why we have such a fantastic winning percentage for the month – we made our selves READY and our mindset was WILLING because we were ABLE to take advantage of the market dip by going to cash.
Just because we are long-term investors – it doesn't mean we can't time our entries and exits when we reach the tops and bottoms of our trading channels!
This is one of the most important articles I've written in a long time.
by phil - June 21st, 2014 6:20 am
So far, in the first two weeks (through the 9th), we had 94 Trade Ideas for our Members and all but 11 (88%) were winners (see Part 1 and Part 2). Of course we use hedges, where we purposely bet the opposite direction in order to protect ourselves so it's not possible to be 100% and even 88% is strange – usually we're aiming for around 66%.
The trick isn't to be right ALL the time, but to control your losses so they don't counteract the gains. Usually, we go for trades that have a good chance of paying 200% or more within 18 months so we EXPECT to make 10% a month or more. When those work, we get huge wins – if we then keep our losses to 20% (of our allocation) or less – the statistics take care of themselves as +20%, -20%, +60%, -20%, 0% on 5 trades (for example) gives you 5 allocations that made an average of 8%.
When one of those allocations goes up 100%, you don't even need to get half of them right to have a winner – but ONLY if you control your losses AND maintain consistent allocations. That's what we practice in our Long-Term Potfolios – PORTION CONTROL!
By scaling into positions (something else we practice with our Members in our Long-Term Portfolios), even if we lose 100% of our initial position – it's generally only about 20% of an allocation. Since we can't lose more than 20% of an allocation and we usually try to make 200% or more on the cash we lay out for our long-term trades (which nets 40% or more for a winning allocation) – again, math does its work over time.
That being said, let's have a look at how week 3 went in May:
May 12: Just Another Manic Monday
While investors may not have learned anything from the last crash, the Banksters have learned that you can manipulate just a few key,